Tuesday, April 24, 2012

In Vancouver: The affordability/amenity balance

This morning I participated in a workshop organized by the Downtown Vancouver Association to discuss housing affordability and amenity in the downtown. In advance of the session Jeff Lee called me to find out what I might be saying. I told him.

He then contacted Andrea Reimer who was also on the panel and she shared her views. This has led to extensive conversations on Twitter and Frances Bula's blog with many people disagreeing with my assertion that Community Amenity Contributions paid to the city are passed on to consumers. (I might add that I have not yet heard one developer who disagrees with this claim.)

Nonetheless, I felt compelled to share some further thought on Frances Bula's blog, and for the few people who are interested in this topic, and don't read Frances' Blog, here is what I wrote:

The concerns I have with CAContributions that are calculated based on estimated ‘ land lift’ at the end of the rezoning process are as follows:

While one would like to think that the amount of the CAC would be factored into the amount paid for land, the amount of the contribution is generally not known when one buys a piece of property. And as one well known appraiser said to me …Michael, as long as you have the right appraiser on board, you should be ahead of the game.

I don’t like a system where the amount of the contribution can be tied to which appraiser is on board, or how effective a negotiator you are.

If anyone wants to suggest the amount of the CAC that is ultimately paid is not a matter of having the right appraiser, or your negotiation skills, you are either naive, or deluding yourself.

Michael Flannigan advised me that the CAC/DCC’s received by the City from rezonings have been working out to about $40 a foot buildable. That is not an insignificant amount. As Jeff Lee noted in his story, the city has generated a lot of money from these payments.

(As an aside, why hasn’t this money been spent on additional childcare facilities…they are really needed…almost everywhere except in the downtown where the city has negotiated quite a few childcare facilities as part of the CACs. But that’s another story.)

I am not suggesting that the CAC’s are the main reason for the high price of housing in Vancouver, but I stand by my contention that the payments to the city do generally get passed on to buyers…they are not all absorbed in a reduced land payment. If you don’t believe me, you are either naive or deluding yourself.

There are other problems with the current system. Firstly, it inadvertently encourages a municipality to improperly zone land, so that a developer will come forward and play “Let’s make a deal”. Some developers like to play this game…and play it very well…but most don’t want to take a chance and therefore go to Burnaby or Coquitlam or Richmond where they think they have a better chance of winning. If you don’t believe this, you are either naive or deluding yourself.

Another problem with this approach, and this should be of concern to neighbourhood groups, is that there is an incentive for a municipal government to rezone land to higher and higher densities, just to get the additional amenities, or the money. Increasingly, the city of Vancouver is asking for the cash. I know that Brent and others will tell you that this would never happen, but if you believe that, you are either naive or deluding yourself.

So to summarize, as a number of people mentioned at this morning’s DVA discussion, the city has become somewhat addicted to the CAC payments that arise from rezonings.

What I told Jeff Lee is that there is a need to balance the affordability/amenity equation. I believe the best way to do this is to increase the supply of suitably zoned land, and establish predetermined CACs/DCCs. Don’t force developers to go through a rezoning during which time the amenity contributions are negotiated.

Also at this morning’s discussion, one prominent member of the Mayor’s Task Force told me the City does what it does because it would need a charter amendment to establish across the board CAC’s/DCC’s. If that’s the case, then seek the amendment.

The city should also look to other ways of financing growth and amenities. There are many lessons to be learned from the past. Yes, these will spread the cost across a larger population, and over a longer time period, but it may be worth it.

Finally, a more certain process will increase the number of developers coming forward to build in the city. Now, this may not be so good for those developers who are doing so very well under the current system, or the real estate and development consultants who guide projects through the system…(remember, I used to be one of them!) But ultimately it will create more certainty, that will lead to more competition.

If you don’t believe me, just go over to the UDI office and have a quiet chat with some of the people who work there. They’ll tell you how they often hear from developers who tell them they work outside of Vancouver, rather than in the City, because the Vancouver City process is too uncertain.

More certainty will lead to more supply and more competition…and this, combined with some of the recommendations set out in my Roundtable report to the Mayor’s Task Force could well lead to more affordable prices in the city.

54 comments:

I received the following comment from Frank Schliewinsky who many will remember as the producer of Vancouver's Condominium Handbook. While Frank is off on a boat, he still closely follows the local market, often collaborating with MPC Intelligence. Here is what he had to say:

hi michael,

been following with some interest the reaction to your suggestion that cac's add to the price of housing in vancouver. it seems as if your critics have never seen a pro forma analysis (certainly never saw one when i went to planning school) and are under the delusion that buyers or the market sets the price for new product. from my experience, most developers work on a cost plus basis and hope that price increases will save their project if their prices come in higher than current market prices. and usually their marketing guys will agree that they can get those higher prices because what do they have to lose?

i would agree that in a competitive market, reducing costs should reduce the end price to buyers. but the vancouver high rise market is now a one dimensional market supported almost solely by chinese buyers with most of the money coming from the PRC. i don't think that price limits have yet been reached for these buyers so there's no incentive for developers targeting this market to reduce prices even if costs come down. but this whole issue of condo prices in vancouver can get very confusing because according to MPC's data, price per unit for new high rise condos has remained fairly flat since jan, 2010 but only because of the increasing emphasis on smaller suites. price per sf is of course up. if you had the cmop report, you'd know all this. the media is already talking about 200 sf units that come with a hamster wheel.

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